Why Banks Are Failing the Next Generation of Social Entrepreneurs

Banks have always been seen as the backbone of economic growth. They’re the engines that power businesses, fuel innovation, and drive wealth creation. But when it comes to the new wave of social entrepreneurs, they’re becoming more of an obstacle than a solution. How can we expect tomorrow’s changemakers to thrive when today’s financial institutions still can’t speak their language?

The simple truth is that banks are failing social entrepreneurs. According to the Global Entrepreneurship Monitor (GEM) report, about 40% of entrepreneurs in developing regions report access to finance as their greatest challenge. For social enterprises, the gap is even wider. A study by J.P. Morgan and the Global Impact Investing Network (GIIN) found that 68% of social enterprises struggle to secure traditional funding. This failure underscores a broader issue: financial systems designed for profit maximisation and risk avoidance are incompatible with the needs of purpose-driven founders.

Traditional Banking’s Profit-Driven Culture

The first issue is simple: banks want to see profits, and they want to see them fast. Traditional financial institutions are built on models that reward high-growth, high-profit ventures, often at the expense of long-term impact or purpose. This is where they miss the mark for social entrepreneurs.

Social enterprises, by nature, don’t always prioritise profit as their primary goal. Their dual focus on creating both social and financial value makes them a different breed of business. However, when they approach banks for funding, they’re often rejected because they don’t fit the traditional mould.

Take my own experience with The Cookie Project in New Zealand. Our focus was on creating employment opportunities for people with disabilities, not necessarily on driving sky-high profits in the first few years. Banks couldn’t grasp the idea that we measured success by the number of lives changed, not just the size of our revenue stream. This lack of alignment meant we had to self-fund our venture initially.

Globally, this issue is rampant. Harvard Business Review reports that over 70% of social entrepreneurs in early-stage ventures experience difficulties accessing traditional bank loans due to their “non-commercial” outlook.

Banks Don’t Understand Social Impact Models

The second major issue is that banks simply don’t understand the business models of social entrepreneurs. While traditional businesses can point to profit margins and revenue growth, social enterprises measure their success through social return on investment (SROI), a metric that looks beyond financial gains to track social impact. However, only 12% of financial institutions actively consider SROI in their lending models, according to a study by Deloitte.

Social entrepreneurs often need flexible funding options that recognise their unique needs: slower profit growth, longer impact cycles, and unpredictable revenue streams tied to their social mission. Yet banks rarely provide such flexibility, resulting in many social enterprises being pushed to the side.

In one of my previous roles across Asia, I witnessed this firsthand. A local bank refused to fund a community-driven project focusing on women’s education, simply because it couldn't deliver the short-term returns they were used to seeing in more commercial ventures. Despite its clear potential for creating societal value, the project lost crucial funding simply because it didn’t fit the bank’s rigid profit-focused model.

The Rise of Alternative Financing Models

Because of this failure, social entrepreneurs are increasingly turning away from traditional banks and towards alternative financing options. Impact investing, peer-to-peer lending, and crowdfunding platforms have stepped in where banks have failed.

In 2023, the global impact investing market was valued at approximately $1.16 trillion, according to the Global Impact Investing Network (GIIN), highlighting its rapid growth and the increasing preference for mission-aligned financing. Moreover, platforms like Kickstarter and GoFundMe have raised billions, with socially focused projects accounting for a significant portion of these funds. In fact, the Kickstarter Impact Report from 2022 stated that over 35% of successful campaigns in the last five years were tied to social causes.

These alternative models are thriving because they understand the dual objectives of social enterprises—both profit and impact. Crowdfunding, in particular, appeals to social entrepreneurs because it allows them to raise capital from people who believe in their mission, not just their financial potential.

The rise of impact investing is another signal that banks are missing the boat. Impact investors seek both social and financial returns, aligning more closely with the needs of social entrepreneurs. The fact that the impact investing market grew from $114 billion in 2017 to over $1 trillion in 2023 shows just how wide the gap is between traditional banking and the demands of social innovation.

Final Thoughts

So where does this leave us?

The banking sector needs to evolve, and fast. If banks are serious about remaining relevant, they must adjust their risk models, create specialised financial products for social enterprises, or even develop dedicated social impact financing divisions.

The next generation of social entrepreneurs isn’t waiting for banks to catch up—they’re finding new ways to fund their impact. If you want to be part of this change, it’s time to rethink the role of banks in shaping our future.

The opportunities are immense—if they act now. If you're a banking professional, impact investor, or social entrepreneur, I’d love to hear your thoughts. What can we do to align financial systems with the needs of tomorrow’s changemakers? Reach out to me for a discussion on how we can create better systems for social impact financing.

#SocialEntrepreneurship #SocialImpact #ImpactInvesting #CSR #SustainableFinance #FinanceForGood #ESG #SocialInnovation #PurposeDriven #BankingReform

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Eric shows up every week to serve the LinkedIn community by sharing insights from his two-decade of leadership journey in banking, social impact and social entrepreneurship. As an advisor and consultant, Eric guides organisations in developing effective social enterprise strategies and employee wellness. Based in Ipoh, Malaysia, he also promotes mental health through his non-profit initiative.